3 popular consumer cyclical stocks offering 5% dividends

Lately, major national stock indexes have been making a habit of setting new all-time highs.

Unshakeable hopes for aggressive interest rate cuts by the Federal Reserve in 2024 have pushed the Dow, S&P 500 and Nasdaq-100 to record levels ahead of this week’s key economic data: the initial reading of fourth-quarter GDP and the Fed’s preferred inflation indicator, Core CPI. Add in heavyweight stocks like Netflix and Tesla, and we could find ourselves on a roller coaster ride.

As bull market momentum rages on, many investors have turned to the consumer discretionary sector in hopes of outsized returns. The move makes sense for a couple of reasons.

First, if rates fall and inflationary pressures ease as expected, American families will have greater spending power. Budgets would get an even bigger boost from continued wage growth. Companies that benefit from greater discretionary spending would in turn earn higher profits and see their shares rise.

Second, consumer cyclicals have historically been one of the best groups to invest in. Over the past 10 years, the S&P 500 Consumer Discretionary sector has produced a cumulative return of 171%. This is second only to information technology, which grew by a staggering 507%. So why not focus everything on technology?

Overall, the tech sector is currently expensive, at 44 times last year’s earnings. In contrast, the Consumer Discretionary sector has a P/E ratio of 24x. And what the technology boasts in terms of growth metrics, it lacks in terms of dividend payouts. Add in the high volatility of the tech sector, and there is a place for consumer discretionary in a diversified growth and income portfolio.

If the nation’s economy strengthens, dividend-paying consumer cyclicals could generate a good mix of growth and income in 2024. The liquidity they provide can also offer protection to investors tired of the market’s all-time highs.

So while the days of 10-year US Treasuries offering a 5% yield are long gone, several US consumer discretionary stocks currently offer dividend yields of at least 5% – 26 to be exact. Here are some examples of large caps.

What is Ford’s dividend yield?

Ford Motor Company NYSE: F currently pays a quarterly dividend of $0.15 per share. This equates to a forward dividend yield of 5.4%, which is an estimate of what the investor would earn over the next 12 months. That’s a return on cash that is nearly three times that of the average consumer’s discretionary stocks. Among publicly traded automakers in the United States, Ford’s yield is second only to that of Stellantis, which boasts a forward yield of 6.9%.

After the market closes on February 6, Ford will announce fourth-quarter financial results. The company’s disappointing third-quarter numbers and lack of guidance (related to the UAW deal) triggered a sell-off in October 2023 that pushed the stock to its lowest level in nearly two years — and its dividend yield higher than 5%. Last week, Ford announced it had added a third production team to meet demand for its new Bronco SUVs and Ranger pickups, but lowered production prospects for its F-150 Lightning electric pickup.

Is Hasbro’s dividend sustainable?

At 5.8%, Hasbro, Inc. NASDAQ: HA has the highest dividend yield in the leisure products sector. But is the quarterly dividend of $0.70 per share sustainable?

According to analysts’ earnings projections for next year, the toy maker has a forward rate of return of 66%. This is the percentage of company profits that would go to shareholders as cash dividends if the dividend amount remained constant. A payout ratio of 66%, while high, doesn’t necessarily mean Hasbro is at risk of having to cut its dividend. This implies, however, that only about a third of profits will be retained for future growth projects.

For now, Hasbro’s dividend appears safe. And with its share price down more than 30% since September 2023, the yield is attractive. A leadership position in the $30 billion toy industry should drive the long-term cash flow needed to support the dividend.

Does Wendy’s stock pay a dividend?

Wendy’s Company NASDAQ: WED food may be fast, but to cash in on the stock’s 5.3% annualized dividend, investors will need patience. Wendy’s offers the highest dividend among mid-cap restaurants, but it’s a dividend that could very well be reduced in the years ahead. This is because the forward rate of return is above 80%, implying that there will be limited cash flow remaining for reinvestment in growth. If profits don’t improve, Wendy’s short three-year streak of dividend increases could end.

When Wendy’s reports fourth-quarter performance on Feb. 15, Wall Street will be looking for 5% EPS growth. Earnings growth is expected to accelerate to 12% in 2024. This should support management’s plan to open new offices, expand overseas and invest in digital technologies. Wendy’s juicy dividend appears sustainable but depends on the successful implementation of its growth strategy.

Before you consider Ford Motor, you’ll want to hear this.

MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Ford Motor wasn’t on the list.

While Ford Motor currently has a “Hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here